Wrong.

In order to claim this credit there is new paperwork to fill out.  I am sure that Obama and Congress thought as they passed this, “Our tax code is already so complicated, most Americans need a full time accountant just to keep up with it.  One more form shouldn’t hurt.”

It turns out that millions of returns aren’t submitted correctly.  Now the IRS is having to pick up the slack by filling out the forms and submitting them on behalf of the taxpayers.  Do you see the pattern here?

Contrived inefficiency + American aversion to bureaucratic tedium = New jobs at the IRS

It is too bad that the health care disaster doesn’t go into effect for a few years.  It could really create a lot of new jobs.  People were worried that the government was taking over 1/6th of the economy.  Chances are, the health care industry is going to go through a robust expansion as legions of workers are going to be needed to process all the paperwork.

Perhaps the best part of my online software business, school lunch choice, is that it is taxed as an LLC.  This entity can be as simple or as complex as I want it to be depending on how aggressive I want to get with deducting expenses.  Harrison Price from Just Politics, recently shared an article on Facebook discussing a recent recommendation by Obama’s FCC to impose a federal internet tax on digitial goods and services.

Currently, most ecommerce business models are taxed once the income passes through the entity to the income of the owner of the business.  Various states will regulate ecommerce to an extent with sales tax laws etc., but because most ecommerce transactions won’t be limited to a particular state, the reach of the states is a limited nuisance.

You have to love the logic in the recommendation by the FCC:

Digital Goods and Services Taxation

RECOMMENDATION 4.20:  The federal government should investigate establishing a national framework for digital goods and services taxation.
The National Broadband Plan is focused on increasing beneficial use of the Internet, including e-commerce and new innovative business models.  The current patchwork of state and local laws and regulations relating to taxation of digital goods and services (such as ringtones, digital music, etc.) may hinder new investment and business models.  Entrepreneurs and small businesses in particular may lack the resources to understand and comply with the various tax regimes.
Recognizing that state and local governments pursue varying approaches to raising tax revenues, a national framework for digital goods and services taxation would reduce uncertainty and remove one barrier to online entrepreneurship and investment.

Hmmmm.  Let’s look at the last 15 years.  It is pretty obvious that one of the most prevalent trends of the last 15 years has been an absolute dearth of new investment and business models surrounding the growth of the internet.  In fact I am having a hard time even thinking of one new company or innovative business model that has arisen as a result of the growth of the internet.  You would think that something as revolutionary as the internet would have had a bigger impact.

Imagine all the businesses that would exist if there were just more taxes on the internet

It is pretty likely that if Obama’s administration could just get a good federal tax in place that all the entrepreneurs and small businesses that are just waiting on the sidelines will finally jump in. Most of the small business owners I consult with tell me that the biggest obstacle to their business is that the federal government isn’t taxing everything they are doing. It really gets in the way of business. How are they supposed to know what to do with their businesses without the FCC telling them what to do? What are they supposed to do with their profits if they don’t give them to Washington?

I for one am pretty excited about this. Finally!!! Someone will decide to bring commercial value to the internet. Finally!!! Investors and entrepreneurs will decide to give this internet thing a chance.

What the FCC fails to recognize is that there already exists a national framework for digital goods and services taxations, and this framework is that there are no federal taxes on digital goods and services.  If there is one thing that causes Obama to lose sleep at night, it is probably the fact that there is an entire industry that is relatively untaxed and unregulated.

We'll Stay, Forever this way...

Last year about this time I wrote a post about Social Security being bankrupt entitled Weapon of Mass Wealth Destruction as a response to the Trustees report that I receive last year from the Social Security Administration.

In the post, I said the following:

In other words, every dollar that I sink into social security will decrease at a value of -.77% for 32 consecutive years to be worth .78 cents on the dollar when I retire.  I know that nowadays this sounds like a pretty good investment.

Well, I got my latest version of the Trustees report this week, and it was a verbatim repeat of last year’s report with one small difference.  Now the SSA is promising that I will get just $.76 on every dollar that I contribute.  Pretty slick strategy on their part.  Since everything else is the exact same – including the advice that I should be saving and investing my money somewhere else where it will actually appreciate in value – I suspect most people won’t notice this massive deterioration of value.

I know that the SSA probably assumes that Americans don’t do math, or else the whole idea of Social Security would never have gotten off of the ground.  Or maybe they assume that Americans are just so good at math that they can use its “inherent logic” to justify things like Obama’s health insurance plan.  Indeed, behind that monstrosity there has to be an army of MIT PhDs with their fancy models trying to convince everyone that this disaster of an idea will somehow fare better financially than Social Security and/or Medicare.

I am no math expert.  However, I am 30 years old.  Let’s assume I am going to claim my Social Security benefits at age 67.

37 X 2 = 74

If Social Security continues to erode in value at its current pace, then I can expect to collect $.02 on every dollar that I put in.  I guess you can argue that the math of Social Security is more complex than this.  Whatever.  The bottom line is this: Social Security is a TERRIBLE INVESTMENT and certifiable proof that the federal government needs to give up on trying to offer entitlement programs.  It clearly cannot run them effectively.

It is true that private financial markets are a risky place for your retirement.  However, if you are stupid enough to believe that you can live a quarter of your life without having to work or be productive, then you probably deserve to lose every dime you make to any swindler who comes along selling you this lie.

For further thoughts on Social Security, read Social Security Bankrupt.

Hire someone, or else...

I recently received a comment on my blog from Trenton Powers.   Naturally, when people comment on my blog and leave a backlink, I will go check out their blog.  Two posts on his blog are certainly worth discussing.

In one post he says this:

As a runner-up to the Milford Regional Chamber of Commerce Businessperson of The Year in 2007 I know a thing or two about business and economics. For instance I know that this purported letter from a conspicuously anonymous, alleged reader of the reactionary conservative rag, the National Review is hogwash:

Small business will start to hire when one big thing happens.Sales Growth. End of story.

This goes beyond simple intellectual dishonesty and charges head-first to the realm of deliberate misrepresentation.  There is no correlation between small business’ hiring practice and sales growth. Only the presence of robust regulation can create an environment conducive to increased employment opportunity in the private sector. By extension, government expansion is a necessity if one wishes to create a job-friendly atmosphere.

In another post he says this:

Just to take the previous post a step further, wouldn’t it fix a whole butt load of problems if government were to mandate that small business hire people if they earn profits above an arbitrary threshold?

For instance, its really not unreasonable for a family owned polymer-injection business, or a start-up pinking enterprise to be required to bring on another worker if that business makes more than $20,000 in profits, or they could be required to take on a migrant worker if they pass a $10,000 profit threshold.

This is not a bad idea.

You can see from the comments that I made, that I think that this is a bad idea.  Trenton defends this idea as outside the box thinking.  However, in the Age of Obama, I can’t think of a clearer example of knee-jerk, inside-the-box thinking than to conclude that the best way to solve a problem is government intervention.  I am curious what the readers of the Independent Bloghorn think of Trenton’s idea.

About 524 million acres

The size of the Louisiana Purchase was 524 million acres.  Most of this land is now privately owned.  It would be hard to argue that America would be as prosperous and powerful today, if this “Breadbasket of the world” was managed by federal bureaucrats.  Because this land is managed by private owners and corporate interests, America has been a significant exporter of food and has been able to feed its people with abundance with few minor exceptions.  When you have a country that is geographically capital rich in its ability to feed its people, this frees its population to engage in other industrious activities like building microchips, aircraft carriers, and entitlement programs.  You would think that with such a clear historical example of the virtues of private ownership of land, that the federal government would have continued this trend during the rest of the Westward expansion.  With the exception of Texas, this hasn’t been the case for the rest of the West.

Go West, Paradise is there...

The Louisiana Purchase was a massive acquisition for the United States Government.  However, the federal government’s current land holdings, mostly in the West, dwarf the Louisiana Purchase in size.  The federal government currently controls 623 million acres.  In Martin L. Gross’ book, National Suicide: How Washington is Destroying the American Dream from A to Z, he discusses the negative impact that the federal mismanagement of these lands has on the respective states.  He mentions a current real estate boom in Arizona, California, and Nevada, where solar energy companies are trying to develop solar energy plants as a response to generous subsidies from Washington.  The Bureau of Land Management, however, halted this development to wait for environmental impact studies.  We can only hope that these environmental impact studies are conducted with the same scientific rigor and discipline as the University of East Anglia’s climatology department.  Needless to say, what this travesty reveals is that the reason our country isn’t energy dependent isn’t because we don’t have the technology and resources to make it happen.  We are dependent on foreign oil imports because our lands with the most energy resources are located in the West on lands owned by the federal government.  One of the primary reasons we are dependent on foreign debt imports, is because our capital rich and resource rich geography is being severely mismanaged.  Anyone with basic knowledge of finance knows that if your overextended with your credit, then it is time to start liquidating assets.  It would be a great idea for the U.S. to sell its massive holdings of Western land to private American enterprises, individuals and State Governments as a means of reducing our national debt.  However, in order for a change of this magnitude to happen, we need leaders who recognize this opportunity.  My friend, Michael S. Lee, is considering running for the Senate in Utah to replace Bob Bennett.  He has this to say about the constitutionality of the federal government holding such a large portion of western land:

In light of the text and history of Article I, Section 8, Clause 17, there is a valid basis for questioning whether federal land should be exempt from taxation by the host State where, as is often the case, the host State’s legislature has not given Congress exclusive legislative jurisdiction over that land. While a broader power could be (and has been) inferred from Article IV, Section 3, Clause 2—which authorizes Congress to “dispose of and make all needful rules and regulations respecting the territory or other property belonging to the United States”—that provision says nothing about exclusive legislative jurisdiction. For that reason, in order to read Article IV, Section 3, Clause 2 as giving Congress boundless discretion over federal land (i.e., as authorizing Congress to act as a sovereign with respect to land acquired by the federal government within a State, but without the consent of that State’s legislature), one must essentially ignore the “legislative consent” language of Article I, Section 8, Clause 17. The best way to reconcile Article I, Section 8, Clause 17 with Article IV, Section 3, Clause 2 is to conclude that (1) the former authorizes Congress to control federal land as a sovereign—such that Congress may dictate that federal land is exempt from all taxation and regulation by the host State—but only if the host State’s legislature has consented to such an arrangement, while (2) the latter authorizes Congress to control federal land to the extent permitted by the generally applicable laws of the host State—such that Congress may not prohibit the host State from taxing and regulating federal land to the same degree that it taxes and regulates private property—but does not require Congress to obtain the consent of the host State’s legislature.

In many instances, the host State would gladly give the consent described in Article I, Section 8, Clause 17, authorizing Congress to exercise exclusive legislative jurisdiction over certain federal lands. In Utah, for example, I suspect that the legislature might freely give such consent with respect to the land comprising Hill Air Force Base, the Utah Testing and Training Range, and Zion’s National Park. But in other instances, Utah’s legislature would be reluctant to give such consent, recognizing that—because the federal government owns nearly 70% of the land in the State—the State would suffer (as it does now) if all federal lands were exempt from taxation. There are a number of factors that the legislature would want them to consider in deciding whether to relinquish control over the various parcels of federal land. But the important point is that this decision would belong—and consistent with the text and history of the Constitution, should belong—to the legislature of the host State, and not to Congress.

Unfortunately, the Supreme Court reached the opposite conclusion in Kleppe v. New Mexico, 426 U.S. 529 (1976), essentially ignoring (and effectively obliterating) the important textual distinction between the power granted by Article I, Section 8, Clause 17, and that granted by Article IV, Section 3, Clause 2. That decision needs to be revisited, given how severely it undermines the legitimate, sovereign, and constitutionally protected interests of States—especially those in which the federal government owns a significant amount of land. It may well be that Congress (rather than the Supreme Court) is in the best position to undo the injustice brought about by Kleppe v. New Mexico. Congress could do so by enacting a law providing that, absent the consent of the host State’s legislature, the federal government owns land within a State on the same footing as any other property owner within that State, and not as a sovereign exempt from taxation and regulation.

I know that it is a radical idea to be electing people to Congress that have knowledge of the Constitution.  I will close by quoting what Martin Gross thinks we should do:

Because Washington has shown that it cannot manage these lands in the best interests of either the states or the nation, citizens should demand the return of all mineral rights, including oil and gas, back from Washington to the states.  They can then develop them properly by calling on commercial leaseholds, which will bring the states enormous royalties.

This is only fair because the rights were taken away from the former territories years ago, when they were too weak to fight Washington.

As a result of such arrogant federal mismanagement, debate should start on the final objective.  We should return all federal land – except for national parks – to the states so that they, and the American people can reap the harvest of our own good earth.

It’s nice to see that this new change in attitude hasn’t been lost on the treasury department.  Earlier this week, there were several news stories about certain institutions paying back their TARP money.  They were even going to pay back the money with some interest, hence the taxpayers were making a profit.  However, yesterday we learned that the wise stewards of TARP haven’t been the great investors the original stories made them out to be.  According to this story, a recent audit shows that taxpayers are showing a loss of $61 billion dollars on just the AIG and auto company bailouts.  This loss wipes out the $19.5 billion profit reported earlier this week.

TARP

If a publicly traded private company engaged in this kind of behavior, it would be investigated for securities fraud.  If the public company of our government, whose stock is privately traded among various special interest groups, engages in this kind of financial reporting, nobody cares.  Also, if a company with a $700 billion market cap reported a $40 billion loss in one year, the market’s reaction would be swift and painful.  If Obama & Bush inc. loses this much money, there’s not much that can be done.  After all, there was so much resounding shareholder…I mean taxpayer support for Obama to buy off his supporters in the UAW with the auto bailout, that this is a bad investment that we are all going to have to live with.

Most presidents get out of office and build a library or something.  Obama should start an investment bank.

Helicopter Ben

Congress is currently creating a bill that would threaten the independence of the Federal Reserve.  Basically they want the Government Accountability Office to be able to audit federal reserve policies.

This is one of those things that most Americans probably don’t care about.  The fed was set up to be an independent institution, so that the tools of monetary and fiscal policies could be used without consideration to shortsighted political pressures like elections every two years.

You can agree or disagree with what the fed is doing, but it is hard to argue that it would be better for Congress to be able to intervene with the Fed and do things like set or even influence interest rates.

I am not sure where Congress gets so much confidence in their abilities to fix things.  One of the positive things about this bill was the response it produced from Bernanke:

Bernanke separately urged Congress and the administration to lay out a plan that would bring the budget deficit down to a “sustainable” level of 2 percent to 3 percent of gross domestic product, from a projected ratio of about 13 percent this year. Much of the shortfall stems from the $787 billion fiscal stimulus — which Bernanke said is too soon to judge for its effectiveness — and the Treasury’s financial-rescue efforts.

“Unless we demonstrate a strong commitment to fiscal sustainability, we risk having neither financial stability nor durable economic growth,” the Fed chairman said in his testimony.

Bernanke also outlined the Fed’s exit strategy from many of their bailout efforts.  We have yet to hear an exit strategy from Obama or Congress after they rushed into a quagmire of debt with no exit strategy.

A system of obligations that bound lords and their subjects in Europe during much of the Middle Ages. In theory, the king owned all or most of the land and gave it to his leading nobles in return for their loyalty and military service. The nobles in turn held land that peasants, including serfs, were allowed to farm in return for the peasants’ labor and a portion of their produce. Under feudalism, people were born with a permanent position in society. (See fief and vassal.)

Note: Today, the word feudal is sometimes used as a general term for a set of social relationships that seems unprogressive or out of step with modern society.

Where it was tempting to write another post juxtaposing my thoughts with phrases from the musical, Les Miserables, I have decided against this.  Nevertheless, it is nice to see that Obama isn’t stopping at Great Depression economic policies when it comes to unprogressive solutions to our economic crisis.

Apparently he is mulling a modern reinvention of the feudal system.  This passage is from Reuters:

U.S. government officials are weighing a plan that would let borrowers who have fallen behind on their mortgage payments avoid eviction by renting their homes instead, sources familiar with the administration’s thinking said on Tuesday.

Under one idea being discussed, delinquent homeowners would surrender ownership of their homes but would continue to live in the property for several years, the sources told Reuters.

Landlord in Chief

This is a perfect example of liberal-feel-good policy.  How can we argue against a seemingly benign government putting the taxpayer’s neck on the line one more time to bail out improvident homeowners and their silly bankers?  I believe that we can safely assume that the feudaral government would be a benevolent landlord.  I am also pretty confident that Neo-Feudalism will have no negative unintended consequences.  It is very unlikely to incentivize people to quit their mortgages.  It is also unlikely to incentivize banks to continue to make bad loans.  It is also unlikely to artificially lower rental rates, thus wiping out whatever real estate investor class still exists in America.  It is also unlikely to perpetuate the downward spiral in housing prices that most economists agree needs to be reversed.  It certainly wouldn’t promote a greater sense of entitlement among average Americans.  It wouldn’t violate the 10th Amendment and further restrict state’s rights by replacing a local source of state revenue, property taxes, with a federal source of revenue, housing rental proceeds, to be divvied out to the states.  This policy will probably also help reduce the unemployment rate as delinquent homeowners are forced to live in their homes for years and are unable to uproot and find work elsewhere.  After all why go look for a job if your unemployment check now comes with a rent stipend that you can use to continue living in the house that used to be yours.

I also let most of the convicts in the prison system go and pretty much wiped out rehab programs and substance abuse problems.  It is now up to the surrounding states to make sure all of these drug-addicts and criminals stay in California.  I hear there are a lot of vacant homes, so I am sure they will find somewhere to squat.  The one exception, however, is the illegal immigrants in the prisons.  They will have to be deported.  I am a little disappointed that cutting prison programs was the only option to solve this problem.  Outsourcing criminal detention and drug rehab to countries like China, Cuba, Russia, or Mexico would be a cost effective way of dealing with criminals.  It would also be a pretty good deterrent to prevent crime.  

I also cut all the excess education programs.  Sorry, community colleges.  You were a nice idea, but this state has bigger problems.  I have good news for kids.  They get an extra week of summer.  I also cut Calgrants.  Sorry students, you will just have to go get some more student loans.  I am sure there are plenty of those to go around.

I wiped out most of the welfare programs.  The good news here is that by giving up these programs, California gives up over $3 billion in federal funds.  This will be a nice windfall for Obama, whose economic team is working relentlessly to try and cut $100 million from his $1.75 trillion budget – keep up the good work gentleman.  

I did a few one-time fixes.  Mostly the ones where the state government takes money from local governments.  I think California needs a little infighting.  

With the state workers, I didn’t do anything that was possibly illegal.

I got rid of all the general government expenses that I could.

I enabled tax witholding for independent contractors and raised taxes on alcohol, and …drumroll please…California now has a $289 million surplus.

This activity is a little flawed.  California recently passed extensive tax increases to cover the budget shortfall.  Not surprisingly, increasing taxes actually reduced tax revenues coming into the state, thus widening the shortfall.  I was a little disappointed that this interactive game didn’t have an option for tax cuts.  There are far more historical examples where tax cuts increase tax revenues than there are examples where tax increases increase revenues.

You can play the balance the budget game yourself here.